Life Insurance for Vancouver Real Estate Developers
The business of Real Estate development in Vancouver is one that is very capital intense. There are multiple source of funding to accomplish these projects. You can either use earned money, borrowed money or investor funds.
When using money earned by the business, the tricky part is the need to keep the funds liquid for future projects. However, by keeping earned money in a bank account, your money is non productive and is shrinking from inflation.
When using construction financing, although a limited number of lenders are willing to finance such projects, the process is complicated and the carrying costs are high. Some lenders will also discontinue their construction financing program for periods of time.
Investor funds are some sometimes used for financing as well but that also means that you have partners that will demand a larger percentage of the project than with borrowed funds.
Cash Value Based Life Insurance Policy
One idea to consider is to use earned money to purchase a cash value based life insurance policy first. A cash value based life insurance policy is an asset that grows over time, but also allows you to borrow against it whenever you need funds during the construction phase.
Vancouver Real Estate Developers – Insurance Policies That Work
As a real estate developer, you typically will already have a need for life insurance protection, whether it is for a business partner or a family that you leave behind. Often times, a real estate developer will seek to cover their life insurance needs with a low cost term life insurance. This is a good strategy because it covers the need with the lowest possible cost and thereby saving funds for projects. However, the alternative strategy to use a permanent life insurance policy, instead of a term life policy, effectively allows you to use the money twice.
The first use of your earned money is to purchase a growing asset, and the second use is to borrow against the policy to create your second asset. If the project is then sold, you can use the proceeds to pay back the loan secured against the policy and you’re ready for the next project. Meanwhile, your life insurance policy is still growing in a tax sheltered manner. Also, because the borrowed proceeds are for profit purposes, the interest is likely to be tax deductible. For tax considerations, remember to consult your accountant.